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Cairo-headquartered revenue-based financing (RBF) platform FlapKap has raised US$3.6 million in a seed funding round led by US-based venture capital (VC) firms QED and Outliers, as well as Egypt-based VC firms Nclude and A15. The new round follows the $1.2 million FlapKap raised as an investment in March 2022- the same month the fintech startup was launched.
FlapKap’s business model involves offering non-dilutive funding -a form of working capital that doesn’t require a startup founder to give up equity or ownership when receiving it- to small and medium businesses (SMBs) and software-as-a-service (SaaS) firms, which is then repaid as a fixed percentage of the revenue they generate. “This means that whatever investment we make into the business is repaid, along with our small fixed fee, as a fixed percentage of the daily sales, till the total outstanding amount is fully repaid,” Ahmed Coucha, co-founder and CEO of FlapKap, explains. “In other words, our clients pay us back only when they sell. If sales increase, so do our repayments. And, vice versa, repayment slows down if sales fall.”
Now, it is no secret that the e-commerce boom witnessed through the course of the coronavirus pandemic incentivized a lot of businesses to start selling online. Coucha, however, laments that this shift magnified a lot of funding-related issues for the already financially underserved SMB market. “On the one hand, e-commerce SMBs, which are constantly struggling to access the needed funds for growth, are not easily understood by the traditional banks,” Coucha says. “Not to mention that the banking process is very slow for their growing needs, and that excessive collaterals are usually required, which add extra risk on the founders. On the other hand, getting investors’ money to finance working capital means giving up equity. This creates an adverse incentive for growth. The more these companies can grow, the more the founders will lose in their ownership. Not to mention that this option is only available to a select few. That’s why we have created what we call a 3F offering: fast, flexible, and founder-friendly funding.”
The chain of events that sparked Coucha’s inspiration for FlapKap, however, came much before the pandemic had even begun. “More than 11 years ago, I co-founded a digital advertising agency, which has now grown into a much larger advertising network called GP&K,” Coucha recalls. “At GP&K, we have mostly worked with what we call the ‘top-of-the-pyramid’ clients such as Amazon, Netflix, Coca-Cola, P&G, and many others. But along our journey, we realized that aside from offering these clients advertising services, we were also offering them banking services, and the larger the client’s budget, the more generous credit terms they get. This always struck me as counterintuitive and a bit ironic. We thus felt that this was an immense opportunity to help the ‘middle-of-the-pyramid’ SMEs. During the coronavirus e-commerce boom, I came across the RBF model, and that’s when we decided to start FlapKap to become the first RBF player in the MENA.”
Ahmed Coucha, co-founder and CEO, FlapKap. Source: FlapKap
From Coucha’s perspective, while FlapKap caters to a very niche issue in the funding ecosystem, it doesn’t necessarily see itself acting as a separate entity in the grand scheme of things. “FlapKap acts as a missing puzzle piece, supporting our partners as an extended department,” he explains. “Our business model can solve their working capital issues with the media or inventory funding within 48 hours.” But flexibility in financing apart, by offering tools such as intuitive dashboards that provide insights on advertisement spending, as well as a spend-now-pay-later feature for inventory management, FlapKap also seeks to provide a holistic solution for SMB founders. “We support our clients in optimizing their digital ads through an artificial intelligence (AI) model that we are building, as well as access to our growth experts, and that’s why we see ourselves as a full-fledged growth solution,” Coucha adds. “We support our customers in optimizing their business and identifying growth areas, then fund them in the most flexible way to realize this growth.”
With the funds they have now raised, the FlapKap team hope to be able to scale their services across the MEA region. “While the newly raised funds will be used to fuel more growth for our customers, the majority of the funds will be deployed to more clients across KSA, UAE, and Egypt,” Coucha says. “Another part will be used in scaling our tech platform and further investing in our AI model to generate more meaningful insights for our partners.” FlapKap’s decision to raise a seed round, however, wasn’t always on the cards, reveals Coucha.”Since our launch, we’ve been receiving generous interest from the investment community, but we had to respectfully turn down their offers as we had enough cash to go for another year at least and we wanted to focus on building the product,” Coucha says. “However, we decided to open the round when we received interest from QED. Aside from being one of the largest fintech investors in the world, QED is the leading investor in the RBF space globally. They were also amongst the first investors in our global peers, Wayflyer and Fairplay, who have collectively raised over $900 million of debt and equity. So, it was a no-brainer for us that getting such an esteemed partner on board early on can accelerate our growth massively.” It was this decision to open a strategic ad-hoc round for QED that eventually led to FlapKap also partnering with the aforementioned VC firms Outliers and Nclude.
Now, in light of how the ongoing funding winter has led to a stagnation in investment opportunities for many startups, Flapkap’s story many not be particularly reflective of most funding anecdotes in the region right now. But Coucha still has a few words of advice for fellow entrepreneurs. “Raising during this time is not an easy task at all with many VCs following a strategic wait approach, but despite ours not being a typical round, there are so many learnings that can be helpful,” Coucha says. “The most important of these learnings is to raise when you are not most in need. Raising while short in cash will force us into a survival mindset, not a strategic one. We don’t want to be raising to survive, we hopefully want to raise to thrive!”